Mumbai, Aug. 25: It’s not easy to swallow, but true all the same. Most companies where financial institutions (FIs) hold sizeable stakes are laggards in corporate governance. The ones where they don’t, or own only a sliver of equity, give a better account of themselves.

A study conducted by Pitabas Mohanty, a professor of T. A. Pai Management Institute shows institutional investors have been indifferent to whether companies remain fair and honest to shareholders. “Almost everybody agrees the financial institutions, though in a position to influence corporate governance of companies, don’t do anything,” the study states. In an observation that will send shivers down many a spine, it says few mutual fund managers look at the way firms are governed before putting their money in it.

To most institutions, says the study, the clinching factor is the return on the stock, not notions of fair play. A National Stock Exchange research lobs the blame for sloppy governance into the court of companies. Institutions have preferred to focus only on whether their money is growing fast enough. On the other hand, the research says companies that have borrowed from institutions, not bartered away part of their equity, have put up an improved show.

The study has other interesting findings: Mutual funds and corporate governance index have a positive relationship. The same is the case with money lent by FIs like IFCI, ICICI and IDBI and the corporate governance index, except UTI, where it is the reverse.